Market Analysis

Beyond the Numbers

Upbeat Microsoft Earnings May Generate Initial Buying Interest
7/19/2019 8:58 AM

The major U.S. index futures are currently pointing to a higher opening on Friday, with stocks likely to add to the modest gains posted in the previous session.

Early buying interest may be generated in reaction to upbeat earnings news from Microsoft (MSFT), with the software giant jumping by 2.8 percent in pre-market trading.

The advance by Microsoft comes after the company reported fiscal fourth quarter results that exceeded analyst estimates on both the top and bottom lines.

The markets may also continue to benefit from optimism about a near-term interest rate cut following comments from New York Federal Reserve President John Williams on Thursday

Williams said it “pays to act quickly to lower rates at the first sign of economic distress,” arguing it is “better to take preventative measures than to wait for disaster to unfold.”

However, a New York Fed spokesman later claimed Williams’ remarks were based on years of research and not specifically about potential policy actions at the upcoming Fed meeting.

Stocks saw considerable volatility over the course of the trading session on Thursday, with the major averages showing wild swings back and forth across the unchanged line before eventually ending the day in positive territory.

Following the pullback seen over the two previous sessions, the Dow inched up 3.12 points or less than a tenth of a percent to 27,222.97. The Nasdaq also rose 22.04 points or 0.3 percent to 8,207.24, while the S&P 500 climbed 10.69 points or 0.4 percent to 2,995.11.

The higher close on Wall Street came as the comments from Williams seemed to endorse a near-term interest rate cut by the Fed.

In remarks at the Central Bank Research Association's annual meeting in New York, Williams argued it "pays to act quickly to lower rates at the first sign of economic distress."

"My wife is a professor of nursing, and she says one of the best things you can do for your children is to get them vaccinated," Williams said. "It's better to deal with the short-term pain of a shot than to take the risk that they'll contract a disease later on."

"I think about monetary policy near the zero lower bound—or ZLB for short—in much the same way," he added. "It's better to take preventative measures than to wait for disaster to unfold."

Williams' comments come after the minutes of the latest Fed meeting noted several participants believed a near-term rate cut was appropriate from a risk-management perspective, as it could help cushion the effects of possible future adverse shocks to the economy.

Buying interest was somewhat subdued, however, as traders were also digesting news that the U.S. Navy has shot down an Iranian drone in the Strait of Hormuz.

President Donald Trump told reporters the USS Boxer took defensive action after the drone closed to within 1,000 yards of the amphibious assault ship and ignored multiple calls to stand down.

The downing of the Iranian drone comes a month after the Islamic Revolutionary Guards Corps shot down an unmanned U.S. surveillance drone.

Traders were also reacting to a mixed batch of earnings and economic news while also looking ahead to the release of quarterly results from software giant Microsoft (MSFT) after the close of today's trading.

Gold stocks moved sharply higher over the course of the session, with the NYSE Arca Gold Bugs Index surging up by 3.2 percent to its best closing level in almost two years.

The rally by gold stocks came as the price of the precious metal soared in electronic trading on news of the U.S. Navy shooting down an Iranian drone.

Significant strength was also visible among tobacco stocks, as reflected by the 2.9 percent jump by the NYSE Arca Tobacco Index.

Philip Morris (PM) led the tobacco sector higher after reporting better than expected second quarter results and raising its full-year guidance.

Semiconductor, biotechnology, and transportation stocks also saw notable strength on the day, while weakness remained visible among retail stocks.

Commodity, Currency Markets

Crude oil futures are rising $0.39 to $55.69 a barrel after tumbling $1.48 to $55.30 a barrel on Thursday. Meanwhile, after climbing $4.80 to $1,428.10 an ounce in the previous session, gold futures are up $8.80 at $1,436.90 an ounce.

On the currency front, the U.S. dollar is trading at 107.76 yen versus the 107.30 yen it fetched at the close of New York trading on Thursday. Against the euro, the dollar is valued at $1.1221 compared to yesterday’s $1.1277.


Asian stocks posted strong gains on Friday, as investors cheered dovish comments by a top Fed official as well as better than expected fourth-quarter earnings results from Microsoft.

China's Shanghai Composite Index climbed 23.02 points or 0.8 percent to 2,924.20, while Hong Kong's Hang Seng Index jumped 303.74 points or 1.1 percent to 28,765.40.

Chinese households' rising debt servicing costs could weigh on medium-term economic growth, Fitch Ratings said in a report released today.

Although debt servicing costs do not pose near-term risks to financial stability, it will weigh on growth prospects in the medium-term, the rating agency noted.

Japanese shares led regional gains after steep losses in the previous session as the appreciation of the yen took a breather. The Nikkei 225 Index soared 420.75 points or 2 percent to 21,466.99, while the broader Topix closed 1.9 percent higher at 1,563.96.

Exporters Canon, Honda Motor, Toyota Motor and Sony all rose around 2 percent. Panasonic climbed 2.8 percent as the yen held steady after the release of inflation data showing consumer prices rose at the slowest pace in nearly two years in June.

Australian markets rose notably after a top Fed official emphasized the importance of acting quickly to arrest any weakness in the U.S. economy.

The benchmark S&P/ASX 200 Index advanced 51.20 points or 0.8 percent to 6,700.30, while the broader All Ordinaries index ended up 50.80 points or 0.8 percent at 6,786.20.

National Australia Bank rallied 2.2 percent after appointing veteran banking executive Ross McEwan as its new chief executive. The other three big banks rose around 1 percent.

Gold miners surged as the precious metal surpassed the key $1,450 an ounce level for the first time since May 2013. Evolution Mining, Newcrest, Northern Star and Resolute Mining climbed 3-7 percent. Mining heavyweights BHP and Rio Tinto ended marginally lower.

In the oil sector, Woodside Petroleum and Santos fell over 1 percent, while Origin Energy and Beach Energy rose over 2 percent.

Oil prices rose over 1 percent in Asian trading after the U.S. Navy shot down an Iranian drone in the Strait of Hormuz. WTI futures ended down about 2.6 percent overnight as the resumption of service in the Gulf of Mexico region raised concerns about excess supply in the market.

Seoul stocks rallied to snap a two-day losing streak on hopes for a Fed rate cut during a policy meeting slated for later this month. The benchmark Kospi ended up 27.81 points or 1.4 percent at 2,094.36.

Market heavyweight Samsung Electronics advanced 1.5 percent to extend gains from the previous session, while SK Hynix, the world's No. 2 memory chipmaker, added 2.8 percent.


European stocks have edged higher on Friday as investors cheer dovish comments by a top Fed official and Microsoft reported revenue of $125.8 billion for the fiscal year 2019, setting a new record for the company.

On the data front, the U.K. budget deficit widened to the highest June level since 2015 in June, while the euro area current account surplus rose to a seasonally adjusted 30 billion euros in May from 22 billion euros in April, separate reports showed.

While the French CAC 40 Index has risen by 0.3 percent, the U.K.’s FTSE 100 Index and the German DAX Index are both up by 0.2 percent.

Budweiser owner Anheuser-Busch InBev has soared after announcing the sale of its Australian subsidiary for A$16 billion ($11.3 billion).

German automaker BMW has also shown a notable move to the upside after naming Oliver Zipse as its new chief executive.

Acacia Mining shares have soared after the company announced that it has reached terms of a recommended offer, under which Barrick Gold Corp. will acquire all Acacia shares which it does not already own.

On the other hand, Close Brothers Group has tumbled in London. The merchant bank flagged low trading volumes at its market maker unit.

U.S. Economic Reports

The University of Michigan is scheduled to release its preliminary report on consumer sentiment in the month of July at 10 am ET. The consumer sentiment index is expected to inch up to 98.5 in July after dropping to 98.2 in June.

At 11:05 am ET, St. Louis Federal Reserve President James Bullard is due to speak on a panel about technology and the future of the monetary and financial system at the Central Bank Research Association annual meeting in New York.

Boston Fed President Eric Rosengren is also slated to speak on a panel about central bank independence at the CEBRA meeting at 4:30 pm ET.

Stocks In Focus

Shares of Skechers USA (SKX) are moving sharply higher in pre-market trading after the sneaker maker reported second quarter results that exceeded analyst estimates on both the top and bottom lines.

Brewer Molson Coors (TAP) may also move to the upside after raising the quarterly dividend on its Class A and Class B common shares to $0.57 per share from $0.41 per share.

Shares of State Street (STT) are also seeing significant pre-market strength after the financial services company reported second quarter earnings that beat expectations.
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